Shopping for a mortgage feels like ordering coffee these days.
You pick a rate, then the lender asks if you want to add points.
Suddenly you're doing algebra in a strip mall office while your realtor taps her foot.
One discount point costs 1% of your loan amount and typically lowers your interest rate by about 0.25%.
On a $400,000 mortgage, that's $4,000 upfront to shave a quarter of a percent off your rate.
Sounds small until you run the monthly numbers.
Say you're choosing between a 7% loan with no points and a 6.75% loan with one point.
On $400,000 over 30 years, that quarter point saves roughly $67 a month.
Divide your $4,000 by $67 and you get about 60 months.
That's your break-even point: five years.
Stay in the house longer than that, and paying points puts you ahead.
Sell or refinance before then, and you basically donated $4,000 to the bank.
The break-even math moves fast when rates are high.
At today's elevated rates, a point buys a bigger monthly drop than it did when mortgages sat near 3%.
That makes buying points more tempting than it's been in years.
But tempting isn't the same as smart for everyone.
Points make the most sense if you plan to stay put for a long stretch, have cash beyond your down payment and emergency fund, and expect to keep the loan.
They make the least sense if you're stretching to close, might relocate for work, or think there's a decent chance you'll refinance if rates fall.
Refinancing wipes out the benefit of your points entirely, since you start over with a new loan.
Points paid on a purchase mortgage are often deductible in the year you pay them, while points on a refinance usually get deducted gradually over the loan's life.
That's not a reason to buy points by itself, but it softens the upfront sting for some buyers.
Talk to a tax professional about your situation rather than assuming.
One more trap: lender credits, the flip side of points.
You accept a higher rate, and the lender covers some closing costs.
That's the right call if cash is tight and you'd rather keep money in the bank.
The trade-off is a bigger payment every month for as long as you hold the loan.
Ask your lender for a side-by-side loan estimate showing both scenarios, then do the division yourself.
Upfront cost divided by monthly savings equals months to break even.
Compare that number to how long you honestly expect to stay.
It also pays to shop at least three lenders, because point pricing varies more than most buyers realize.
A point at one bank might cut your rate by 0.15%, while another offers 0.3%.
That difference changes the break-even math dramatically.
Get everything in writing and compare the annual percentage rate, not just the headline rate.
The bottom line: points aren't a scam and they aren't a magic trick.
They're prepaid interest, and like any prepayment, they only pay off if you stick around long enough to collect.
Final Thoughts
Run your own numbers before you let anyone talk you into writing a bigger check at closing.